By Jack Cumming
You likely know Brookdale primarily for its shrinking business and the boardroom squabbles that have occurred a couple of times since the 2014 merger with Emeritus. The public relations release then heralded, “The merger transforms Brookdale into the only national full-spectrum senior living solutions company, with over 1,100 communities in 46 states, covering 80% of the U.S. population.”
From Then to Now
A visit today to Brookdale’s website first demands to know who is lurking, a sure barrier to an inquiring prospect. It then goes on to state, “Brookdale’s more than 650 locations nationwide mean there’s likely a community near a neighborhood you already call home. Find those closest to you.” Hmmm … the past decade has shrunk the business by half. This had better make sense, especially since a new outsider, Ortelius, is proposing to shrink the business further.
To examine this shrinking phenomenon, I looked into a community near me that was once an attractive Brookdale community. Now, it’s no longer Brookdale. Instead, it’s a Bayshire Senior Community. To all appearances, it’s thriving. If it hadn’t been sold, it could instead have thrived to enhance Brookdale shareholder value … not to mention the value that Brookdale might have brought to the residents and the community. Brookdale once had so much potential.
Closest to Me
Bayshire is operated with a caring outlook for people, which contrasts with the monetary focus of Brookdale’s current brouhaha. Entrepreneur Scott B. Kirby is the owner, president, and CEO of Bayshire. Kirby’s background “is rooted in a personal experience with his father’s illness, which impressed upon him the importance of genuine caregiving. He became a nursing home administrator in 2006 with a focus on finding caregivers with a heartfelt approach.” Click here to see the family face of Kirby’s Bayshire.
Senior living is a capital-intensive business, and Scott Kirby has found a capital partner that shares his values. CareTrust REIT, Inc. provides the capital that allows Bayshire to take off from where Brookdale left off. Dave Sedgwick, president and CEO of CareTrust REIT, describes the business:
“Combining hands-on senior care, and real estate expertise, gives us a unique perspective for investing. We analyze the relevant facts and figures, but also take a much deeper dive into each operator’s profile and long-term potential in order to build a strong, diversified portfolio for our shareholders.”
Customers Think Long-term
The keyword here is “long-term.” The long-term requires a focus on customers and growth. The short-term trades properties in deals seeking a quick buck, often at the expense of operators and the customers they serve. Of course, there could be better ways of financing the industry than the REIT focus on maximizing investor returns, since that inherently puts pressure on operators to put money before care quality. Still, there are more responsible REITs, and others that are less so.
The 1960 Real Estate Investment Trust Act was intended to open real estate investing to less affluent investors, i.e., to democratize real estate investing. Previously, real estate investing was primarily the provenance of wealthy individuals and institutions. Whether REITs live up to that democratic intent is a question for discussion. Many of those small investors may also be senior living customers.
Lost in the Wilderness
Brookdale appears to have lost direction. Perhaps because of its size, it attracts the wrong kind of leadership. Bringing two corporate cultures like Emeritus and Brookdale into harmony with each other can be a challenge, and Brookdale appears to have stumbled over that. Keeping the focus on customer value, even as recurrent earnings conference calls require a focus on short-term operating results, can be difficult. In short, it takes highly capable talent to lead such a business, and Brookdale is known for replacing its CEOs.
Now, with the benefit of hindsight, we can say that those optimistic expectations with which today’s Brookdale launched back in 2014 have been disappointed. Part of the failure is the meddling interference of outside money interests. Part of it is the failure of the board to support the leadership.
John F. Kennedy cited the aphorism, “victory has a thousand fathers, but defeat is an orphan,” when he took responsibility for the Bay of Pigs disaster. That applies today to the lost potential for America’s aging population that Brookdale once seemed to promise. Bayshire is capitalizing on Brookdale’s lost opportunity. Growth succeeds where profit margins don’t, with the possible exceptions of diamonds and perfume.
Disclaimer: I bought Brookdale at $37, and it now sells for under $7. ‘Nuff said.
